I know I’m mixing wrestling and boxing metaphors. But there are few rules at Free Advice.

David R. Henderson has a good critique of Krugman’s latest post about “unprecedented austerity” (Krugman’s term). For example, Krugman labels a sharp reduction in the rate of growth of spending as a “collapse in spending.” That’s simply not correct. It’s not merely misleading, it is false. (That’s presumably one reason that David, in his analysis, says he leans toward outright “contradiction” rather than “Kontradiction.”) To be hyper-accurate, I should acknowledge that the very end of Krugman’s chart does show a reduction in total spending, but that’s clearly not what Krugman is labeling as the “collapse” in the context of his discussion.

David makes some other points too that are worth reading. However, I want to focus on something he didn’t bring up:

The deficit scolds have not had a good year. They’ve seen their forecasts of fiscal disaster fizzle; they’ve seen their favorite economic analyses crash and burn; they’ve seen the rise of a faction with actual power in the Democratic party that refuses to acknowledge their wisdom. This last bit is crucial: deficit scoldery has always depended on the illusion of consensus, in which all the, well, serious people agreed that debt is the most important enemy. [Bold added.]

Does everyone see the contradiction (Kontradiction?) here? Within the course of three days, Krugman is arguing:

(A) Nobody is listening to the deficit scolds. They’ve been warning for years that the deficit was a looming threat, but recent forecasts show it has come down significantly since they started their yapping.

(B) Over the past few years, policymakers have been listening to the deficit scolds, rather than guys like me. We have had, and continue to suffer from, unprecedented fiscal austerity.

How can both of the above be true?

54 Responses to “Henderson/Murphy Tag Team the Keynesian Champ”

(2) by 2010-2012 there was a Republican push towards austerity that influenced federal spending and caused the stimulus to tail off as well as the rate of increase in spending to fall (= contractionary fiscal policy).

Dude, that’s a heads I win tails you lose argument. You can’t blame the Republicans for “austerity” driven fall in the deficit out of one part of your mouth, and then out of the other part of your mouth use that reduction in the deficit to scold the Republicans as being worry warts.

It would be like some war monger complaining that he isn’t able to invade as many countries as he wanted due to peaceniks having too much influence in the government, and then use that very fact of the lack of a lot of imperialism as proof that the war against everyone is working so that’s why the army doesn’t need to be in so many countries.

Dude, that’s a heads I win tails you lose argument. You can’t blame the Republicans for “austerity” driven fall in the deficit out of one part of your mouth, and then out of the other part of your mouth use that reduction in the deficit to scold the Republicans as being worry warts.

Is this one opf these pop culture references I don’t get? I mean from context I can tell it’s a plaudit. Was this from a kid’s show after my time, or some Star Wars movie I never watched? (Of which there are too few.)

Ken B in casinos in some contexts (I think Blackjack but not sure) if you get something lucky then imagine a Chinese buffet operator saying, “winner winner chicken dinner!” Then yes, it gained popularity and some people say it in movies etc.

LK, you understand of course that this “Republican push towards austerity” is nothing but smoke and mirrors. Exhibit A is the recent budget deal.
Don’t you think it’s funny that despite this massive so called “one time stimulus” of around $800B in 2009, the expenditures continued to rise in subsequent years?
So the way I read this:
In 2008 they spent x.
In 2009 they spent x + y% (some baseline increase) + $800B
In 2010 they spent x + y% + $800B + z%
And the austerity part is the fact that z is somewhat smaller than y, but still positive. Give me a break.

The tragedy is that there is no discernible difference between R and D. Both parties enthusiastically support the welfare/warfare state and continue to create fake “crises” to convince the plebs that there is indeed a difference. With a few (and hopefully increasing) exceptions, they are all a bunch of progressives, hell bent on creating a two class society.

Krug is trapped between ideology and partisanship on this point and it’s making his commentary even more slippery than usual. He has to figure out a way to slam the allegedly baleful influence of the ‘austerians’ etc. without trashing Obama’s economic record. The result is this oscillating spin where he spends half the time chasing his tail and the other half running away from it.

Indeed. He has to rely on a pure counter factual argument. With lots of unspoken assumptions he never acknowledges. And he has to deny he’s made any predictions, or that predictions are possible. He has to argue instead that compared to what we could have had what we got was inferior.

In the comments, Lord Keynes points out (IMO correctly) that Obama is wrong on this, as a slight majority of Americans generally support stimulus.

Of course, it would be quite a stretch to say their support is due to an understanding of Keynesianism. I’d wager that most Americans simply expect their government to take some interventionist action to fix the economy, and will blame “the other team” or politicians in general if it doesn’t appear to work out.

I still maintain that most average people do not know that there really are people who claim that funny money dilution and unpayable debt and deficits cause prosperity. I would focus upon getting average people to a) understand that those people actually exist; and b) know who those people are.

It takes an especially corrupt person to seriously entertain the notion that printing money in their basement and spending it on their own vacations, sports cars, and houses, actually benefits others.

I mean, it is money that people want when they work all week, right? Why not give more money to them in exchange for their goods! The more money that they have, and the fewer goods they have, the wealthier they are!

“If corporations would have given larger wage increases(after their bailouts and other interventionist advantage), then this economy would be singing by now.”

Why? Because wage earners tend to spend the majority of their income on consumption, which implies more consumption spending grows the economy?

“IT is really crazy to think you can perpetually raise prices and never raise wages…”

I am not endorsing the following, just stating what’s what: It is possible for prices to keep rising without raising wages, if investors are discouraged from saving and investing and into consumption spending on themselves. Total spending won’t fall, but wages will. The net effect is a rise in the percentage of total incomes that are constituted by profit, and an equivalent fall in the percentage of total incomes that are constituted by wages.

If you want higher wages as a percentage of total incomes, then you have to encourage more saving and investing, requires requires less consumption ceteris paribus.

Well that all sounds good on the surface but how do investors spend more on consumption on themselves in lieu of investing and at the same time how does the percentage of total incomes constituted by profits increase? Serious question.

“Well that all sounds good on the surface but how do investors spend more on consumption on themselves in lieu of investing and at the same time how does the percentage of total incomes constituted by profits increase? Serious question.”

Real production would of course decline, so as investment spending rises, and consumption spending rises, nominal profits go up. How much money spending there is, is primarily a function of how much money exists.

Well if real production decreases then real profit should also decrease.

My original point was simple, somehow the Fed justified padding balance sheets yet none of this fiat padding ever seems to make it all the way down to the wage earner in the form of higher wages. The system is corrupt.

Krugman, describing a graph, writes “You can see that there was a brief, modest spurt in spending associated with the Obama stimulus — but it has long since been outweighed and swamped by a collapse in spending without precedent in the past half century.” A collapse in spending means a reduction in spending, The Y axis of the graph shows a rolling 3 year average of the *change* in real spending. Krugman’s characterization of what the graph shows is completely wrong, because it confuses a variable and its derivative. It is the exact equivalent of writing Newton’s law as F = mv.

David
That’s true of course. Think of it as a second opinion.
🙂
There is a misapprehension on this blog that I am a Krugman defender because I point out that the Kontradictions are frequently just strained misreadings. Sometimes I make an effort to dispell the misapprehension.

Yes if you google “Robert Murphy Barron’s review Stockman” you can probably get it. It’s like the 2nd or 3rd page in a compilation of Barron’s book reviews.

Let me clarify though, for brevity they cut out a lot of my review. I believe everything they have in what they published, but it’s mostly criticisms. So you might think I didn’t like the book as much as I did.

(I signed off on everything; I’m not complaining. Just clarifying what happened.)